It seems like a simple question to answer, however, In the United States, the progressive tax system makes it difficult to define an “average” taxpayer and answer the question, how much is taxed in the United States?. Tax brackets or ranges go from 10% to 37% as of 2019 and there are seven, so the “average” tax rate could be expected to be 24.57%. Since there is a 24% tax bracket, then could we say that this is what the average American pays in taxes?
Not really. The 24% bracket applies only to income of $ 84,200 to $ 160,725, at least for single taxpayers, as of 2019. Income thresholds vary by marital status.
So the 24% rate does not affect a single taxpayer making $ 35,000 a year. You should not pay that much. It is in the 12% tax rate range, but only on your income of more than $ 9,700. The first $ 9,700 is taxed at just 10%.
The tax system is progressive, different rates are applied according to income ranges. For example, a taxpayer earning $ 84,201 would pay that “average” rate of 24% on a single dollar of income. Someone who earns $ 200,000 would pay it on $ 76,525 of income, the difference between $ 84,200 and $ 160,725, then he would pay 32% on the portion of his income that is above $ 160,725.
All of this makes the term “average” quite relative.
Keep reading: How much do you pay in taxes in New York?
Tax table in the United States
American tax burden
It is easier to understand the “average” tax burden on American taxpayers. Half of all taxpayers pay less than an average figure, and half of all taxpayers pay above this figure.
According to the Tax Foundation, 50% of the largest taxpayers paid 96.96% of all federal income taxes in 2016, the last fiscal year for which complete and verified statistics are available from the Internal Revenue Service. This means that the other 50% paid only 3.04%.
Note: Based on these and other figures, the Tax Foundation you get an “average” tax rate of 15.57% for the top 50%, only 3.73% for the bottom 50%, and an average of 14.20% overall.
But this is just one way of looking at the equation. There is also something known as the “tax wedge,” and these figures from the Tax Foundation and the IRS reflect only income taxes. Social Security and Medicare also take a percentage of Americans’ income. Technically, these must also be considered when weighing an “average” tax burden.
The «Fiscal wedge» or Tax wedge
The “Tax wedge” is a relationship between what the average citizen pays in taxes and what they would have taken home in profit if they had not had to pay those taxes.
The Organization for Economic Cooperation and Development (OECD) annually calculates tax wedges for the United States and 35 other developed countries. They are based on the pay and tax brackets of single people, and the idea is that the higher the tax wedge, the less likely it is that some taxpayers will see any benefit in keeping a job.
Calculation of the tax wedge
The tax wedge calculations include both income and FICA taxes: Social Security, Medicare, and additional Medicare tax, when applicable. Federal income tax represents the largest burden on American taxpayers – 14.9% of their pay, or about 50% of the total tax wedge.
To calculate the OECD tax wedge, both employer and employee contributions for Social Security and Medicare are used, and the theory is that, although an employee does not have to pay his employer’s contribution out of pocket , that money would have been paid to you differently if your employer did not have to make that contribution. Social Security takes another 12.4% of a worker’s salary, including the part of the tax that corresponds to the employee and the employer.
The tax wedge in the United States
The Tax Foundation reported in May 2019 that the US tax wedge was 29.6% in 2018. But as worthy as it may sound, it is still below the OECD average for all countries, which was 36.1% in the same year. And the US tax wedge is actually below 2.2% since 2017 due to the Tax Cuts and Jobs Act (TCJA).
Note: What does this mean in dollars? A tax wedge of 29.6% results in about $ 17,596 of the salary of an “average earner,” quoted at $ 59,485 for single individuals in 2018. The average citizen contributed to the federal government in this way, according to OECD calculations.
The “Tax Wedge” vs. “Taxes in the United States”
One thing to note in all of this is that the OECD tax wedge only includes these three taxes: income, Social Security, and Medicare. It does not include sales taxes that individuals typically pay every day, or property or vehicle taxes.
But the OECD is not the only group of experts that is making these calculations. The US Bureau of Labor Statistics (BLS) came up with some slightly kinder figures for fiscal year 2017.
Note: An analysis of the BLS statistics puts the percentage of taxes paid annually at 24% for all American families, including including property taxes but not sales taxes.
This previous figure is due, at least in part, to the fact that dependents are entitled to some tax breaks that elude singles, on which the OECD based its statistics. And it doesn’t include employer fees for Social Security and Medicare.
So what do all of these variables mean for the end result?
- The average single American contributed 29.6% of their earnings to three taxes in 2018: income taxes, Medicare, and Social Security.
- The average income tax rate for all Americans was 14.20% in 2016 according to the Tax Foundation calculation method.
- American families paid an average of 24% in taxes in 2017, according to a study of BLS numbers.